Sometimes in-house counsel believe they can handle a case better, or more cost-effectively, than outside counsel. And sometimes, they just miss practicing law. Still, it’s better to let outside counsel do the talking…and the questioning. It’s impossible to know what motivated in-house counsel in HH Marina Development LLC v. Tarrytown Boat Club, Inc., Index No. 63137/17, to take a deposition. But it didn’t work out well. The facts are straightforward, but unusual.

Under CPLR 3106(d), the party seeking a deposition may designate “a particular officer, director, member or employee” in the notice. Defendants noticed “HH Marina Development LLC by Joseph Cotter” – HH’s President. CPLR 3106(d), however, gives the other side an opportunity to produce someone other than the designee. All that is required is to notify the other side at least ten days before and give the identity, description or title of the witness. Instead of producing Mr. Cotter, Plaintiff designated its General Counsel, Daniel Pennessi.

Plaintiff then sought to depose one of the Defendants. When the parties and counsel showed up, Defendants learned that Pennessi himself planned to ask the questions. Not surprisingly, Defendants objected, and the parties called the Court. When Pennessi could not cite caselaw supporting his position that he was entitled to take the deposition, it was postponed.

Plaintiff then moved to enjoin Defendants from refusing to proceed with depositions conducted by Pennessi. Plaintiff argued that Pennessi should be permitted to take depositions because he had no “threshold or significant testimony to provide upon which this case will be decided.” Justice Jamieson found this “puzzling” as Plaintiff had designated Pennessi as a witness. “By selecting Mr. Pennissi over Mr. Cotter,” the Court wrote, “plaintiff has demonstrated that Mr. Pennessi does, in fact, have ‘threshold or significant testimony to provide.’”

The issue presented to the Court was a case of first impression in New York. Specifically, “whether Mr. Pennessi should be allowed to conduct depositions that will be used in the same trial in which he was also a fact witness.” The Court ruled as follows:

First, Justice Jamieson rejected Plaintiff’s argument based on Rule 3.7 of the Rules of Professional Conduct. Rule 3.7 states that “[a] lawyer shall not act as advocate before a tribunal in matter in which the lawyer is likely to be a witness on a significant issue of fact…” A deposition, Plaintiff argued, is not “a tribunal.” But Justice Jamieson concluded that it was “a distinction without a difference.” Because Pennessi would be a key witness at trial, “he cannot be allowed to take the deposition of other key witnesses.”

Second, Justice Jamieson rejected Plaintiff’s suggestion that “if a deposition transcript must be read during trial, the reader can merely omit Mr. Pennessi’s name so that the jury does not know that he was the lawyer taking the deposition.” The Court found that the proposal “does not account for every possible situation, including one in which the deposition itself becomes an issue at trial.” Justice Jamieson was “not willing to risk a mistrial so that Mr. Pennessi … can take the deposition instead of counsel of record doing so.” Thus, the Court denied the motion for a protective order and ordered that Plaintiff, by counsel other than Pennessi, take the two outstanding depositions.

Takeaway: In-house counsel cannot be a witness in the case and take a deposition, too.

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For many, purchasing real estate is a stressful endeavor. It’s further complicated when one attempts to buy distressed property through a short sale, when an owner sells property for less than the mortgage balance. Lenders typically allow short sales to recoup a portion of the loan balance quickly and avoid a lengthy and expensive foreclosure proceeding. Westchester Commercial Division Justice Linda Jamieson granted a short sale buyer a temporary restraining order (“TRO”) and a preliminary injunction when the seller attempted to cancel the contract.

In Singh v. DiBerardino, Index No. 67782/2017, Plaintiff contracted to buy Defendant’s property in Mamaroneck through a short sale. The parties signed five contracts related to it, each of which included statements that Defendant would sell the property to Plaintiff. They also signed agreements with Plaintiff’s fiancé to maintain and secure the Property and clear violations and liens. After Plaintiff undertook all of those efforts and was ready, willing and able to close, the Defendant decided to back out. Plaintiff commenced action and immediately moved for a TRO and a preliminary injunction pursuant to CPLR § 6301. Plaintiff sought to prohibit Defendant from taking actions adverse to Plaintiff’s interest in the Property and force Defendant to close on the sale.

A preliminary injunction is a drastic remedy which should be used sparingly. In exercising its discretion, the Court must determine if the movant has established: “(1) a likelihood of success on the merits, (2) irreparable harm in the absence of an injunction, and (3) a balance of the equities in favor of the injunction.” Trump on the Ocean, LLC v. Ash, 81 A.D.3d 713, 715, 916 N.Y.S.2d 177, 180 (2d Dep’t 2011). Based on the facts, Justice Jamieson found that Plaintiff met its “particularly high burden” and granted the motion in its entirety.

In opposition, Defendant claimed that she signed the contracts under duress and without benefit of counsel and that the work performed by Plaintiff was unauthorized. But Justice Jamieson rejected these arguments. Regarding the claim of duress: “it is well-settled that ‘[a] party is under an obligation to read a document before signing it, and cannot generally avoid the effect of the document on the ground that he or she did not read it or know its contents” (citing Augustine v. BankUnited FSB, 75 A.D. 596, 597, 905 N.Y.S.2d 652, 653 (2d Dep’t 2010)).

Justice Jamieson also rejected Defendant’s claim that she was not represented by counsel. Not only is this not a defense, but the evidence demonstrated that she obtained legal advice concerning the transaction. The Court further noted that Defendant signed several contracts over the course of two years. Accordingly, “it is simply implausible to believe that she did not know what she was doing, or that she was pressured into doing so on so many different occasions.” And finally, various text messages and emails indicated that Defendant did in fact authorize Plaintiff and her fiancé to perform work on the Property.

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Westchester Commercial Division Justice Linda Jamieson recently granted leave to plaintiffs to amend their complaint seven years after they filed their original complaint.

In MCC Realty III v. Retail Opportunity Investments Corp., Index No. 56448/11, Plaintiffs sought leave to drop three causes of action and add five new ones. The reason: to reflect information discovered after Plaintiffs filed the complaint, including information discovered within a few weeks of the filing of the motion. Defendants argued that they would be “severely prejudiced” by being forced to re-review more than 100,000 documents that already had been produced. Defendants also argued that Plaintiffs’ delay was unreasonable because they long had all the information needed to amend.

Despite the seven-year gap, Justice Jamieson rejected Defendants’ claim of prejudice because the proposed amendment arose out of the same facts in the original complaint. Further, Defendants’ “unsubstantiated” claim of prejudice by having to answer and defend the new claims was not enough to defeat the motion. Instead, Justice Jamieson held, a party must show that it was “hindered in the preparation of his case or has been prevented from taking some measure in support of his position” (quoting RCLA, LLC. v. 50-09 Realty, LLC, 48 A.D.3d 538 (2d Dep’t 2008)).

Justice Jamieson also suggested that the delay was not prejudicial because it was not the product of lack of diligence on the part of Plaintiffs. Since the case was filed, there were 23 motions, 43 court appearances, and dozens of conference calls with and numerous letters to the Court. “None of the parties in this case was ignoring it.”

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Ordinarily in real estate sales, the seller’s pre-closing representations do not survive the closing unless the contract expressly states that they do. The situation is different, however, when the seller has made a pre-closing representation about a then-existing fact, like whether the tenants are current in rent. That was the state of facts alleged by the plaintiff/buyer in 260 Mamaroneck Ave v. Guaraglia, Index No. 70017/17, pending before Westchester Commercial Division Justice Gretchen Walsh.

Plaintiff agreed to purchase a building in White Plains from Defendant based on Defendant’s representations that the commercial tenants were current on rent and not receiving abatements. After the deal closed, Plaintiff discovered that a commercial tenant was unable to pay the full monthly rent amount and expected a rent abatement. Plaintiff sued Defendant seeking rescission of the agreement, asserting breach of contract and fraud claims. Defendant moved to dismiss, arguing that its representations concerning the rent roll did not survive closing. Defendant also argued that Plaintiff expressly disclaimed reliance on any representations outside the contract.

Justice Walsh found that the merger doctrine (the legal bar to contractual representations surviving closing) did not require dismissal of the fraudulent concealment or misrepresentation claims. The denial was based on Plaintiff’s allegation that Defendant misrepresented a then-existing fact (the status of rent payments) to induce Plaintiff to purchase the property. Defendant also argued that the fraud claims should be dismissed as duplicative of the contract claims. Justice Walsh disagreed, as Plaintiff was not complaining about Defendant’s failure to perform under the contract, but that a fact contained in the contract was false. It was also significant, Justice Walsh found, that Plaintiff was not seeking merely contract damages, but rescission of the contract.

Plaintiff’s breach of contract claim, however, was barred by the merger doctrine because the parties did not expressly say that representations concerning rent being paid survived closing. Justice Walsh, therefore, dismissed that claim.

Additional takeaway for those practicing before Justice Walsh:

The dismissal of the buyer’s contract claim was without leave to replead, even though the buyer asked for permission to do so. Justice Walsh explained that, at the Preliminary Conference, she asked Plaintiff’s counsel if Plaintiff wished to replead before responding to Defendant’s motion to dismiss. But counsel chose to stand on the pleadings. That fact, and that the merger doctrine was an absolute bar to the contract claims, led Justice Walsh to deny leave to replead those claims.

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CPLR 3213 enables litigants to efficiently and quickly enforce instruments for the payment of money only or a previously rendered judgment. The rule is a powerful tool for resolving business disputes. But as one Westchester County litigant recently learned (the hard way), it is limited in scope.

In Newman v. Poekler, Index No. 70790/2017, the plaintiff loaned money in connection with a real estate deal. The loan documents included an “Agreement” (which, oddly, the lender did not attach to his motion), a promissory note, personal guarantees and an escrow agreement. When the borrowers defaulted, the lender moved for summary judgment in lieu of complaint under CPLR 3213. The lender argued that the guarantees were “unconditional” which, he claimed, obviated the need to examine additional evidence to establish the borrowers’ obligation. But the lender was wrong because, although the guarantees purported to be “irrevocable, absolute, continuing, unconditional, and general without any limitation,” they were not “unconditional.” Rather, they were qualified by “the sole and limited exception … that Guarantor shall not be obligated to pay Lender under this Guaranty unless and until, in accordance with paragraph 5 of the Agreement, there is an adjudication that prevents for any reason the Note and/or the Agreement from being enforced as against Borrower ….”

In analyzing the issues, Justice Jamieson cited the First Department’s decision in PDL Biopharma, Inc. v. Wohlstadter, 147 A.D.3d 494, 47 N.Y.S.3d 25 (1st Dep’t 2017). In that case, the Court held that:

  • “[t]he prototypical example of an instrument within the ambit of CPLR 3213 is of course a negotiable instrument for the payment of money – an unconditional promise to pay a sum certain, signed by the maker and due on demand or at a definite time”; and
  • “an unconditional guaranty qualifies as an instrument amenable to CPLR 3213 treatment,” but not if “determination of preliminary legal issues, and reference to additional documents, was necessary before the motion court could address the question of whether the relied-on guaranties continued to be enforceable and whether they had come due.”

This, Justice Jamieson found, was “precisely the same situation in this case” as the guarantees required the Court to refer to the Agreement (which the lender did not submit) to determine if “in accordance with paragraph 5 of the Agreement, there is an adjudication that prevents for any reason the Note and/or the Agreement from being enforced as against Borrower ….”

Further, the borrowers argued that there was no such “adjudication” as required and that the Agreement defined an “Adjudicated Event” as “an adjudication that prevents the settlement from being enforced as against the Company (and any owner of the Subject Real Property and any parcel therein)” – an issue not addressed in the motions. Thus, Justice Jamieson denied the lender’s motion as “the Court [could not] interpret the guaranties without recourse to the Agreement.”

Takeaway: Before filing a CPLR 3213 motion, make sure:

  • A lender’s right to repayment is truly unconditional and not dependent upon terms in other related agreements.
  • All relevant loan documents are submitted to the Court. The failure to do so is grounds for denial of the motion and will undermine the movant’s credibility with the Court.

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Most commercial contracts contain a choice of law and forum selection clause. If the contract says that disputes between the parties will only be heard in Delaware courts, the defendant can move to dismiss based on documentary evidence – the contract and the forum selection clause. Similarly, if a plaintiff files a breach of contract case in New York and the contract says that Delaware law applies (but is silent as to where the case should be heard), a New York court can hear the case and apply Delaware law to decide the issues. “Generally, courts will enforce a choice-of-law clause so long as the chosen law bears a reasonable relationship to the parties or the transaction.” Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 629 (2006). But the Court of Appeals explained that New York courts should not apply another state’s law if it would violate some fundamental New York public policy. This is difficult to show. The exception is generally reserved “for those foreign laws that are truly obnoxious.” Id.

So if a contract contains a forum selection and choice of law clause, can a plaintiff avoid being sent out of state by arguing that the law of that other state conflicts with New York public policy? Justice Alan Scheinkman considered that in USA-India Export-Import, Inc v. Coca-Cola Refreshments USA, Inc., Index No. 53047/2014.

In that case, Plaintiff sued on behalf of a putative class alleging that Coca-Cola violated New York’s Returnable Container Act (the “Bottle Bill”) by imposing a charge for returnable containers (the bottle deposit). Plaintiffs alleged that Coca-Cola was not permitted to pass this charge on to them and, by doing so, it violated New York law and policy. Coca-Cola moved to dismiss on the ground that its contract with Plaintiffs required them to litigate any claim related to the contract in Georgia.

The first question the Court addressed was whether New York or Georgia law governed the enforcement of the forum selection clause. Finding the question more procedural than substantive, Justice Scheinkman determined that “the Court shall apply New York law in determining the enforceability and scope of the forum selection clause.”

Applying New York law, Justice Scheinkman found that the case should be heard in Georgia courts, which were free to apply New York law. “Here, the Plaintiffs’ real issue is not so much with the forum in which they agreed to litigate their disputes with Defendant.” Instead, “it is their fear that a court sitting in Georgia will enforce the parties’ choice of law clause and find that New York’s [Bottle Bill] has no applicability to the parties’ dispute.” Justice Scheinkman found no reason to believe that Georgia courts would be indifferent to claims based on New York law. “That Georgia does not have a bottle bill does not mean that the courts in Georgia will inevitably be hostile to fair consideration of claims based on the laws of states which have such bill.”

Thus, if the contract contains both a choice of venue and choice of law provision, and the choice of venue is somewhere other than New York, a defendant can move to dismiss based on documentary evidence. In that case, the Court will not consider whether the choice of law provision – or the substantive law of the other jurisdiction – violates New York public policy. That determination will be made by the court that the parties agreed to have hear the case in.

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Commercial Division Rule 19-a says that, on a summary judgment motion, the Court may direct the filing of “a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried.” Lawyers who don’t handle Commercial Division cases can get tripped up by Rule 19-a in several respects:

First, while Rule 19-a says the Court “may” direct the filing of a Rule 19-a Statement, both Westchester Commercial Division Justices require it. Justice Jamieson’s rules state: “Any motion that omits such a statement will be denied, and any opposition that fails to respond to it as set forth in Rule 19-a will be disregarded.” Similarly, Justice Walsh’s rules state: “A motion for summary judgment which lacks such a statement may be rejected. All opposing papers must include a response to the Statement of Undisputed Facts that shall comply with Rule 19-a (b), (d) of the Commercial Division Rules.”

Second, while Justice Jamieson’s rules state that summary judgment motions lacking the Rule 19-a Statement “will be denied” and Justice Walsh’s rules say that motions lacking it “may be rejected,” the danger comes for the opposing party:

Rule 19-a(b) states that, “the papers opposing a motion for summary judgment shall include a correspondingly numbered paragraph responding to each numbered paragraph in the statement of the moving party and, if necessary, additional paragraphs containing a separate short and concise statement of the material facts as to which it is contended that there exists a genuine issue to be tried.”

Under Rule 19-a(c), “[e]ach numbered paragraph in the statement of material facts required to be served by the moving party will be deemed to be admitted for purposes of the motion unless specifically controverted by a correspondingly numbered paragraph in the statement required to be served by the opposing party.” Bd. of Mgrs. of the Marbury Club Condo. V. Marbury Corners, LLC, 2010 NY Slip Op 51650[U], *13 (Sup. Ct. Westchester County 2010) (matter alleged in Rule 19-a statement admitted when not controverted).

And under Rule 19-a(d), “[e]ach statement of material fact by the movant or opponent pursuant to subdivision (a) or (b), including each statement controverting any statement of material fact, must be followed by citation to evidence submitted in support of or in opposition to the motion.”

Rule 19-a, though, does not require the opposing party to submit its own statement of facts that it alleges are in dispute. That was the holding in Trevcon Construction Co. v. Tappan Zee Constructors, LLC, Index No. 66381/17.

In that case, Defendant moved for summary judgment and submitted a Rule 19-a Statement. Plaintiff controverted some of the claims but did not submit a statement of facts it alleged were in dispute. Defendant argued that the motion should be granted on that basis, but Justice Walsh disagreed. Since Rule 19-a(b) requires such a statement only if the party deems it necessary, the failure to submit one cannot, of itself, be grounds to grant the motion.

Plaintiff nevertheless failed to comply with the requirement that the response must contain citations to evidence submitted in opposition. Justice Walsh, therefore, found Plaintiff’s response “deficient,” but “in the exercise of discretion,” treated Plaintiff’s affidavit in opposition “as the functional equivalent of a counter Rule 19-a statement.”

Nevertheless, hoping to be saved by a judge’s “exercise of discretion” on Rule 19-a statements is dangerous. Recently, on May 23, 2019, Justice Jamieson considered two motions for summary judgement in the same case. The defendant argued that plaintiff’s motion was untimely, but the Court rejected that argument, explaining that, “[r]ather than focus on the procedural, the Court shall focus on the substantive, and decides both motions on their merits.” Justice Jamieson then immediately pivoted to the issue of Rule 19-a statements, finding that plaintiff failed to submit its own Rule 19-a statement, or to refute the defendant’s statement. As a result, the Court found that all of defendant’s factual allegations were “deemed admitted.” HH Marina Dev. LLC v. Tarrytown Boat Club, Inc., Index No. 63135/17. Clearly, Justice Jamieson does not view a Rule 19-a statement as “procedural,” but rather an essential component of considering the case “on the merits.”

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A recent decision from Westchester Commercial Division Justice Linda Jamieson addressed two issues that arise in commercial landlord-tenant relationships: (i) whether a landlord can pierce the corporate veil to hold a tenant’s corporate representative liable under leases; and (ii) the timeliness of claims for past due rent.

Piercing the Corporate Veil

In Hoffman Investors Corp., et al. v. Precision Techniques, Inc., et al., Index No. 70712/17, a New Rochelle-based landlord entered into leases with related corporate tenants. The businesses were owned by Paul Mangione. After Tenants vacated, Landlord sued Tenants and Mangione for unpaid rent and damage to the Premises. Defendants moved to dismiss all claims against Mangione on the grounds that he only executed the leases in his corporate capacity. Landlord argued that the Court should pierce the corporate veil to hold him liable because:

  • Tenants “were really all one and the same corporation and that there was complete and absolute overlap in the corporate ownership”
  • Tenants “occupied contiguous space [and] used the same telephone number”; and
  • “upon information and belief, there was no separate stock ownership, election of directors or separate corporate records.”

To pierce the corporate veil, a party must establish that “(1) the owners exercised complete domination of the corporation with respect to the transaction at issue, and (2) such domination was used to commit a fraud or wrong against against the party seeking to pierce the corporate veil which resulted in the injury to that party.” Agai v. Diontech Consulting, Inc., 138 A.D.3d 736, 737 (2d Dep’t 2016).

Justice Jamieson dismissed all claims against Mangione because Landlord failed to allege that Mangione:

  • used his alleged domination “to commit a fraud or wrong against plaintiff”;
  • “personally abused the corporate form for his personal gain”; and/or
  • “personally emptied the coffers of defendants in order to line his own pockets deliberately at plaintiffs’ expense.”

All Landlord alleged was that a new company formed by Mangione was the beneficiary of the alleged wrongdoing via his alleged fraudulent conveyance of Tenants’ assets to the new company. In rejecting that argument, Justice Jamieson noted that “[i]f plaintiffs’ allegations are accurate, then they may be able to seek recourse against [the new company], which is already a defendant.”

While the decision sheds light on what is not sufficient to pierce, Justice Jamieson provided guidance on what is by citing Agai. In Agai, the veil was pierced as “appellants dominated Diontech, [] Diontech did not adhere to any corporate formalities such as holding regular meetings and maintaining corporate records and minutes, … appellants used corporate funds for personal purposes, and … appellants stripped Diontech of assets as they wound down the business, leaving it without sufficient funds to pay its creditors.” Id.

The Timeliness of Claims for Past Due Rent

Tenants sought to limit Landlord’s claim for unpaid rent to six years prior to the filing of the complaint. Landlord argued that by sending Tenants invoices reflecting the rent and arrears owed, it renewed the statute of limitations each month. Justice Jamieson disagreed, holding that it is “well-settled” that the clock starts “from the date on which the rent payments became due.”

Nevertheless, Justice Jamieson acknowledged an exception to the general rule. The Court held that the statute of limitations can be renewed where “the defendants repeatedly acknowledged owing the entire debt, and reassured the plaintiffs that they planned to pay all of the outstanding arrears” (citing Stillman v. LHLM Group Corp., 2013 N.Y. Slip. Op. 33032 (Sup. Ct. N.Y. County Dec. 3, 2013)).

Administrative Takeaway: Justice Jamieson admonished the parties that “[w]hen citing an unreported case, counsel must submit a copy to the Court.”

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Some people have heard the Japanese kōan “What is the sound of one hand clapping?,” attributed to the Japanese Zen Buddhist Hakuin Ekaku. Well, what is the sound of one party litigating? A default judgment.

When a plaintiff sues and the defendant doesn’t respond, the plaintiff is entitled to a “default judgment.” When the plaintiff is suing for a specific dollar amount, like when suing on a promissory note, the clerk can enter judgment without much else. But, “[w]here the case is not one in which the clerk can enter judgment, the plaintiff shall apply to the court for judgment.” CPLR 3215(a). At least in Westchester County’s Commercial Division, this is no mere formality. A decision on a motion for default judgment written by Justice Alan Scheinkman, former Commercial Division Justice and Administrative Justice for the Ninth Judicial District (and now Presiding Justice for the Second Department), illustrates the point.

In Shadow Tree Income Fund A LP v. RMP Capital Corp., Index No. 67627/2016, four of the defendants failed to answer the Complaint. The plaintiffs moved for a default judgment against those defendants and supported the motion with affidavits and exhibits proving not only the default, but also the defaulting defendants’ liability. This was the right way to go.

As Justice Scheinkman explained: “Default judgments are not to be rubber-stamped once jurisdiction and failure to appear are shown.” Instead, the plaintiff has work to do. “Proof must still be submitted to satisfy the Court, at least prima facie, as to the viability of the uncontested cause of action.” Justice Scheinkman then wrote a twenty-four page single-spaced decision describing in detail the plaintiffs’ allegations and the elements of each claim. Justice Scheinkman then determined that the plaintiffs had, indeed, submitted satisfactory proof of their claims entitling them to a judgment against the defaulting defendants.

More recently, on May 7, 2019, Justice Jamieson denied a motion for default judgment, without prejudice to the plaintiff filing a new motion “supported by an affidavit of a party, explaining exactly how they calculate damages.” Coleman v. JRABS Development Corp, Index No. 70352/2017.  On May 23, 2019, Justice Jamieson denied a motion for default judgment, without prejudice, “for the sole reason that plaintiffs mention that defendant has had two conservators appointed for him, although he does not have one now. Plaintiffs fail to explain to the Court what the circumstances are that required a conservator, and whether the situation has changed. The Court cannot grant a default motion under these circumstances.” Gundelach v. Gundelach, Index No. 57885/2018.

Unquestionably, those seeking a default judgment in Westchester County’s Commercial Division would be well-advised to assemble their proof and be prepared to explain their entitlement to judgment as a matter of law. The Court will not rubber-stamp a request for a default judgment.

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